Quick Facts

The Dominican Republic’s economic freedom score is 61.0, making its economy the 86th freest in the 2015 Index. Its overall score is 0.3 point lower than last year due to considerable declines in the control of government spending and business freedom that outweigh gains in labor freedom and freedom from corruption. The Dominican Republic is ranked 16th out of 29 countries in the South and Central America/Caribbean region, and its score is just above the regional average.

A free trade agreement with the United States and a strategic location in the Caribbean have facilitated economic growth in the Dominican Republic. Over the past half-decade, however, the Dominican Republic has recorded positive changes in only two of the 10 economic freedoms. Labor freedom improved only marginally, but investment freedom advanced by 20 points.

Once an agricultural economy, the Dominican Republic now boasts a robust tourism and services sector. Liberalization of the investment regime has facilitated growth surrounding free trade zones along the coast. However, entrepreneurship and private-sector development remain constrained by inefficient government services and weak rule of law. Corruption is still pervasive in the economy, exacerbated by drug trafficking in recent years. Institutionalizing free-market principles will be vital for securing long-term growth.

Background

Danilo Medina of the center-left Dominican Liberation Party (PLD) won the presidency in August 2012, succeeding three-term President Leonel Fernández, also of the PLD. Haitian immigration is a hot political issue. A 2013 Supreme Court ruling that limited the rights of Haitians who are unlawfully present in the country and their Dominican-born children was partially undone by a Medina-sponsored law in 2014. The Dominican Republic is the second-largest economy in the Caribbean. The traditional agricultural economy has shifted in recent years toward greater reliance on tourism and manufacturing. Remittances from the United States account for about 10 percent of GDP. Drug and human trafficking undermine the rule of law.

Late in 2013, the government launched an effort to improve public-sector transparency, but it seems unlikely to make the institutional reforms needed to reduce widespread graft, and bureaucratic processes will probably remain vulnerable to corruption. The judiciary is politicized and riddled with corruption, and the legal system offers little recourse to those who lack money or influence. Enforcement of intellectual property rights is poor.

The top individual income tax rate is 25 percent, and the top corporate tax rate has been reduced from 29 percent to 28 percent. Other taxes include a value-added tax and a tax on net wealth. Overall tax revenue is 13.5 percent of gross domestic product. Government expenditures equal 20.7 percent of the domestic economy, and public debt equals 34 percent of annual domestic income.

Launching a business takes seven procedures, and the minimum capital required equals about half the level of average annual income. Obtaining necessary permits takes over 150 days on average. The non-salary cost of employing a worker is moderate, but the labor market lacks flexibility in other areas. The government’s SIUBEN system includes targeted conditional cash transfers, electricity and cooking gas subsidies, and subsidized health insurance.

The Dominican Republic’s average tariff rate is 6.1 percent. Imports of used cars are restricted, and government procurement rules can benefit domestic companies. Foreign investors sometimes find it challenging to deal with the bureaucracy. The small financial sector has been modernized and consolidated, but confidence in banking has been shaky. Capital markets are underdeveloped, and long-term financing is hard to obtain.